property calculator

Construction Loan Calculator

Interest on the drawn balance month by month, the interest reserve, and the permanent payment after conversion.

Construction interest accrues only on the drawn balance: Monthly Interest = Drawn Balance × (Annual Rate ÷ 12). Example: a $430,400 loan drawn evenly over 12 months at 8.5% starts at $254.06 a month and ends at $3,048.67, totalling $19,816.33 — the interest reserve. Average outstanding is about 54% of the commitment for a level draw schedule.

Quick actions: Save inputs, view saved runs, print, share, or export results

Saved Runs

Inputs

Land Cost$

Build Cost$

Contingency%

Down Payment%

Construction Rate%

Construction Periodmo

Permanent Loan Rate%

Permanent Loan Termyrs

Loan Fee%

Results

Construction Interest (reserve)

$19,816

Total Project Cost$538,000

Contingency$38,000

Down Payment$107,600

Loan Amount$430,400

Draw Per Month$35,867

First Month's Interest$254.06

Final Month's Interest$3,048.67

Average Monthly Interest$1,651.36

Average Outstanding Balance$233,133 (54.2%)

Loan Fee$4,304

Cash Required at Closing$111,904

Permanent Monthly Payment$2,720.42

Permanent Loan Interest$548,951

Total Cost to Build$562,120

Tip

Re-run it whenever the build timeline slips — every extra month of construction adds interest at the peak balance, not the average.

Formula

Construction loan formulas

Total Project Cost = Land + Build + Contingency
Loan Amount = Total Project Cost − Down Payment
Draw Per Month = Loan Amount ÷ Construction Months

Month m drawn balance = Draw Per Month × m
Month m interest = Drawn Balance × (Annual Rate ÷ 12)
Interest Reserve = Σ monthly interest across the build

Permanent Payment = Loan × [ r(1+r)ⁿ ] ÷ [ (1+r)ⁿ − 1 ]

Interest accrues on the drawn balance, not the commitment, which is why the first construction payment is small and the last is many times larger. Summing month by month rather than applying the usual "assume half the loan" shortcut gives an average outstanding balance of roughly 54% to 56% of the commitment for a level draw schedule — close to the shortcut, but consistently a little above it. Once the build completes, the balance converts to an ordinary amortising mortgage.

Step by step

How the calculation works

1Enter land and build cost separately. Land you already own generally counts toward your equity contribution rather than being financed, which changes both the down payment and the loan size.
2Treat the contingency as a floor rather than a target. Soft costs outside the build contract — permits, engineering, utility connections, difficult site work — are the usual reason it gets consumed before framing is finished, and any overrun beyond it is cash from your pocket because the commitment is fixed at closing.
3The draw schedule is modelled as level monthly draws. Real draws follow inspected milestones and are lumpier, but the shape is the same: payments start small and climb steeply. Budget the final month rather than the average, since that is when cash is tightest.
4Every extra month of construction accrues interest at close to the peak balance, and construction rates run well above permanent rates. Schedule slippage is therefore expensive in a way a rate quote never shows.
5If the land carries its own financing, price that with the [land loan calculator](/calculators/land-loan-calculator) — construction lenders usually pay off a land balance as part of the facility. If you are building to sell or to rent, check the finished economics with the [home renovation ROI calculator](/calculators/home-renovation-roi-calculator).

Related guides

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Loan Payment Guide: Formula, Interest, and Total Cost

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Property Tool

Land Loan Calculator

Price the parcel first — its balloon is usually retired by this facility.

Property Tool

Home Renovation ROI Calculator

Check the completed value against the all-in cost of building.

Finance Tool

Mortgage Calculator

Add taxes and insurance to the permanent payment shown here.

property calculator

Construction Loan Calculator

Interest on the drawn balance month by month, the interest reserve, and the permanent payment after conversion.

Quick actions: Save inputs, view saved runs, print, share, or export results

Saved Runs

Inputs

Land Cost$

Build Cost$

Contingency%

Down Payment%

Construction Rate%

Construction Periodmo

Permanent Loan Rate%

Permanent Loan Termyrs

Loan Fee%

Results

Construction Interest (reserve)

$19,816

Total Project Cost$538,000

Contingency$38,000

Down Payment$107,600

Loan Amount$430,400

Draw Per Month$35,867

First Month's Interest$254.06

Final Month's Interest$3,048.67

Average Monthly Interest$1,651.36

Average Outstanding Balance$233,133 (54.2%)

Loan Fee$4,304

Cash Required at Closing$111,904

Permanent Monthly Payment$2,720.42

Permanent Loan Interest$548,951

Total Cost to Build$562,120

Tip

Re-run it whenever the build timeline slips — every extra month of construction adds interest at the peak balance, not the average.

Summary

Key output metrics

Construction Interest

$19,816

Average balance $233,133 (54.2% of the loan)

Final Construction Payment

$3,048.67

Up from $254.06 in month one

Permanent Payment

$2,720.42

$430,400 amortised over 30 years

D3 visualization

Where the Project Money Goes

Land, build cost, and contingency make the commitment; construction interest and the loan fee are what financing adds on top.

Guide

How to understand and use this calculator

Quick Answer — How Is Construction Loan Interest Calculated?

You pay interest only on the money actually drawn, not on the full loan commitment. Each month's interest is the outstanding drawn balance times the monthly rate, so payments start small and grow as the build progresses.

Total Project Cost = Land + Build Cost + Contingency
Loan Amount = Total Project Cost − Down Payment
Monthly Interest = Drawn Balance × (Annual Rate ÷ 12)
Interest Reserve = the sum of those monthly amounts across the build

Worked example: $120,000 of land plus $380,000 of build cost with a 10% contingency ($38,000) is a $538,000 project. At 20% down ($107,600) the loan is $430,400, drawn evenly over 12 months at $35,866.67 a month.

At 8.5%, the first month's interest is only $254.06 and the last month's is $3,048.67, averaging $1,651.36. Total construction interest is $19,816.33 — the interest reserve. Average outstanding balance works out at $233,133.33, or 54.17% of the commitment, which is why the industry's "assume half the loan" shortcut is close but slightly low for a level draw schedule.

How to Use This Calculator: A $538,000 Build

Enter land and build cost separately, because lenders treat them differently — land you already own usually counts toward your equity contribution rather than being financed. Then add a contingency. Ten percent is a floor, not a target: most lenders require one, and builds that run to budget are the exception rather than the rule. The $38,000 contingency in this example is part of the loan commitment, drawn only if needed.

Set the down payment as a percentage of total project cost. At 20% on $538,000 that is $107,600, leaving a $430,400 loan. Add the loan fee — commonly 1% — and cash required at closing is $111,904.

The draw schedule is the part that differs from every other loan. The calculator models level monthly draws, so the drawn balance climbs from $35,866.67 after the first month to the full $430,400 at completion, and interest climbs with it. Your first construction payment is $254.06 and your last is $3,048.67 — a twelvefold increase over the year, and the reason budgeting the average rather than the peak causes cash-flow trouble late in a build.

The interest reserve of $19,816.33 is usually financed as part of the loan rather than paid from pocket, though this varies. Either way it is a real cost of building and belongs in the project budget. Finally, the permanent loan: $430,400 at 6.5% over 30 years amortises at $2,720.42 a month. Total cost to build, including construction interest and the loan fee, is $562,120.33.

A Second Example: A Nine-Month Build on Land You Own

Owning the land already changes the arithmetic substantially. Take a $240,000 build with a 15% contingency ($36,000) and no land in the loan — a $276,000 project — with 25% down, a 9.25% construction rate, a nine-month build, and a 6.75% permanent loan.

The down payment is $69,000 and the loan is $207,000, drawn at $23,000 a month. First month's interest is $177.29, the final month's is $1,595.63, and total construction interest is $7,978.13 — barely 40% of the first example's, on a project 51% the size, because the build is three months shorter as well as smaller. Average outstanding is $115,000, or 55.56% of the commitment.

Note what happens to that percentage as the build shortens: 54.17% over twelve months, 55.56% over nine. A shorter schedule leaves proportionally more of the loan outstanding on average, but for much less time, and the second effect dominates. Time on the schedule is the biggest controllable driver of construction interest, which is why draw-schedule delays are expensive in a way that a rate quote does not capture.

The loan fee is $2,070 and cash at closing is $71,070. The permanent payment is $1,342.60 and total cost to build is $286,048.13. If the land carries an existing loan, the land loan calculator prices that side, and most construction lenders will pay it off as part of the facility.

Construction-to-Permanent, Draws, and What Goes Wrong

Construction-to-permanent loans close once and convert automatically to a mortgage at completion. Two-close structures require a separate refinance at the end, exposing you to whatever rates exist on that date and to a second set of closing costs. The single-close structure removes the rate risk on the back end, which is why it usually costs a little more up front.

Draws follow inspections, not the calendar. This calculator uses level monthly draws as a planning convention, but real schedules are milestone-based: foundation, framing, dry-in, mechanicals, finishes. A lender inspects before releasing each draw, and the practical consequence is that the builder often carries costs between milestones. Retainage — a percentage of each draw held back until completion — compounds this.

Cost overruns land on you, not the lender. The loan commitment is fixed at closing. If the build exceeds budget and the contingency, the difference is cash out of pocket, because increasing the commitment mid-build means re-underwriting. This is the single most common reason construction projects become distressed, and it is why a 10% contingency is a floor rather than a comfort.

Time is the other exposure. A build that slips from nine months to fourteen accrues five extra months of interest at close to the peak balance, and construction rates are typically well above permanent rates. If the extension also pushes past the loan's maturity, extension fees follow. If you are building to sell or to hold as a rental rather than to occupy, run the finished numbers through the home renovation ROI calculator to check that the completed value justifies the all-in cost.

Limitations

This calculator models level monthly draws at a fixed construction rate. Real draw schedules are milestone-based and lumpy, and most construction loans are floating-rate — usually priced over a published index — so both the timing and the rate can differ materially from what is modelled. Where the actual schedule is front-loaded, interest will be higher than shown; where it is back-loaded, lower.

It does not include soft costs that frequently sit outside the build contract: architectural and engineering fees, permits and impact fees, utility connection charges, surveys, site work on difficult ground, or the cost of temporary housing if you are building while renting elsewhere. On a custom build these can add ten percent or more to the project, and they are the usual reason a contingency gets consumed before framing is finished.

The permanent loan figures assume the full construction balance converts at the rate you enter, with no additional principal reduction at conversion and no escrow for taxes and insurance. Actual permanent payments will be higher once escrow items are added, and lenders may re-appraise at completion in a way that changes the loan-to-value and therefore the terms. This is a general educational tool, not lending or construction advice — get written quotes for both the build and the financing, and consult qualified professionals before committing.

Related Calculators

If the land is being bought rather than owned outright, price it with the Land Loan Calculator — construction lenders commonly pay off a land balance as part of the facility, which is also how a land loan balloon usually gets retired. Once the build is finished, the Mortgage Calculator adds taxes and insurance to the permanent payment shown here, and the Home Renovation ROI Calculator checks whether the completed value justifies the all-in cost. The Loan Payment Guide covers the amortisation formula the permanent loan uses.

Related concepts

Draw Schedule

Staged releases of loan funds tied to inspected milestones. Interest accrues only on what has been released, which is why early payments are small.

Interest Reserve

The projected construction-period interest, usually financed within the loan. A budget item, not a saving.

Retainage

A share of each draw held back until completion. It protects the lender and the owner, and it squeezes the builder's cash flow in the meantime.

Frequently Asked Questions

How is construction loan interest calculated?+

On the drawn balance only, month by month: Monthly Interest = Drawn Balance × (Annual Rate ÷ 12). On a $430,400 loan drawn evenly over 12 months at 8.5%, the first payment is $254.06 and the last is $3,048.67, totalling $19,816.33 across the build.

What is an interest reserve on a construction loan?+

The total interest expected to accrue during the build, usually financed as part of the loan rather than paid from pocket. In the worked example it is $19,816.33 on a $430,400 loan over twelve months — a real project cost that belongs in the budget either way.

Do you pay the full loan amount in interest during construction?+

No, and this is the main thing that surprises borrowers. You pay only on what has been drawn. A level draw schedule leaves an average of roughly 54% to 56% of the commitment outstanding over the build, which is where the industry shortcut of assuming half the loan comes from.

How much down payment does a construction loan need?+

Commonly 20% to 25% of total project cost, though land you already own frequently counts toward that contribution. On a $538,000 project at 20%, the down payment is $107,600 and cash at closing including a 1% loan fee is $111,904.

What is a construction-to-permanent loan?+

A single-close structure that converts automatically to a mortgage at completion, so there is no second closing and no exposure to rates on the conversion date. A two-close structure requires a separate refinance at the end, with a second set of costs and whatever rates then exist.

How much contingency should a construction budget include?+

Ten percent is a common minimum and most lenders require one, but treat it as a floor. Soft costs outside the build contract — permits, utility connections, site work, engineering — are the usual reason a contingency is consumed before framing is finished.

What happens if the build goes over budget?+

The overrun is yours. The loan commitment is fixed at closing, and increasing it mid-build means re-underwriting, which lenders are slow to do on a half-finished house. This is the most common route from a normal project to a distressed one.

What does a delay cost on a construction loan?+

Extra months of interest at close to the peak balance, since delays happen late rather than early. On the worked example, an extra month past completion costs about $3,049 in interest alone — plus any extension fee if the delay pushes past the loan's maturity.

Formula

Construction loan formulas

Total Project Cost = Land + Build + Contingency
Loan Amount = Total Project Cost − Down Payment
Draw Per Month = Loan Amount ÷ Construction Months

Month m drawn balance = Draw Per Month × m
Month m interest = Drawn Balance × (Annual Rate ÷ 12)
Interest Reserve = Σ monthly interest across the build

Permanent Payment = Loan × [ r(1+r)ⁿ ] ÷ [ (1+r)ⁿ − 1 ]

Step by step

How the calculation works

1Enter land and build cost separately. Land you already own generally counts toward your equity contribution rather than being financed, which changes both the down payment and the loan size.
2Treat the contingency as a floor rather than a target. Soft costs outside the build contract — permits, engineering, utility connections, difficult site work — are the usual reason it gets consumed before framing is finished, and any overrun beyond it is cash from your pocket because the commitment is fixed at closing.
3The draw schedule is modelled as level monthly draws. Real draws follow inspected milestones and are lumpier, but the shape is the same: payments start small and climb steeply. Budget the final month rather than the average, since that is when cash is tightest.
4Every extra month of construction accrues interest at close to the peak balance, and construction rates run well above permanent rates. Schedule slippage is therefore expensive in a way a rate quote never shows.
5If the land carries its own financing, price that with the [land loan calculator](/calculators/land-loan-calculator) — construction lenders usually pay off a land balance as part of the facility. If you are building to sell or to rent, check the finished economics with the [home renovation ROI calculator](/calculators/home-renovation-roi-calculator).

Related guides

Learn more about this calculation

Guide

Construction Loan Calculator

Inputs

Results

Construction loan formulas

How the calculation works

Learn more about this calculation

Loan Payment Guide: Formula, Interest, and Total Cost

How to Use Do The Calculation Calculators: A Practical Step-by-Step Guide

Land Loan Calculator

Home Renovation ROI Calculator

Mortgage Calculator

Key facts

Construction Loan Calculator

Inputs

Results

Key output metrics

Where the Project Money Goes

How to understand and use this calculator

Quick Answer — How Is Construction Loan Interest Calculated?

How to Use This Calculator: A $538,000 Build

A Second Example: A Nine-Month Build on Land You Own

Construction-to-Permanent, Draws, and What Goes Wrong

Limitations

Related Calculators

Related concepts

Frequently Asked Questions

Construction loan formulas

How the calculation works

Learn more about this calculation

Loan Payment Guide: Formula, Interest, and Total Cost

How to Use Do The Calculation Calculators: A Practical Step-by-Step Guide

Land Loan Calculator

Home Renovation ROI Calculator

Mortgage Calculator

Key facts

Key output metrics

Where the Project Money Goes

How to understand and use this calculator

Quick Answer — How Is Construction Loan Interest Calculated?

How to Use This Calculator: A $538,000 Build

A Second Example: A Nine-Month Build on Land You Own

Construction-to-Permanent, Draws, and What Goes Wrong

Limitations

Related Calculators

Related concepts

Frequently Asked Questions